The reports of the death of America's financial strength are greatly exaggerated. Yet they're widely believed. According to a Pew poll, nearly half of Americans "see China as the world’s leading economic power." That's a pretty stunning belief when you consider that as of the 2010 IMF figures, the GDP of the US is still higher than that of the next three largest economies combined (14.6 trillion for the U.S.A. vs 14.4 trillion for the combination of China, Japan, and Germany).
So how did a much smaller economy get such a hold over the top mover & shaker? It didn't. According to the Treasury, our total public debt stands a $14.008 trillion. Of that, "intra-governmental holdings" account for about a third at $4.631 trillion. Intra-governmental holdings are the govt writing an IOU to itself from to borrow from all sorts of trust funds and other places where it had money set aside. That portion certainly isn't held by China. The Federal Reserve, various domestic investors (pension funds, mutual funds, etc.), state and local governments, banks, insurance companies, and various other U.S. interests together own large portions of the debt. China only own about $895.6 billion in our debt. Yes, I said "only." That's a large figure to you and me, but it's quite a bit less than is held by our govt lending to itself. It's not all that much more than the amount held by pension funds. It's not all that much more than the amount held by mutual funds. It's not all that much more than the amount held by our state and local governments. It's not all that much more than the amount held by the combination of banks and insurance companies. Lot's of domestic groupings each hold comparable amounts, some more and some less. It's barely more than is held by Japan. It's around 6% of our debt.
At 6% of our debt, that's not ownership. That's not an overwhelming landlord. It's not even a loan shark. Yes, they're a significant lender for us. But they don't have a controlling stake.
Meanwhile, our imports account for about 25% of their exports. And their economy is still largely export driven. If we put strict controls on imports from China it would severely hurt their economy. Strict controls interfering with their exports to the US might well hurt their economy even more than it would hurt ours if they suddenly started dumping our debt. But, of course, they're not about to do that, since much of their cash is tied up in our debt. If they were to sell it quickly, they'd lose a lot of their value from their cash reserves. And where would they put it anyway? The crisis-prone Euro? Not if they've got any sense.
To ice the cake, as David Frum says, it's "a country facing problems as huge as its achievements." They're battling rapid inflation. Their aging workforce situation over the next couple decades may well make our Baby Boomer retirement hurdle look like child's play. And there's been talk of a growing housing bubble in China that may dwarf our Great Recession housing market trouble.
All of this means that China is at least as tied to us as we are to them. They've developed an important relationship with us ... important for both nations. They don't own us.